Andy Bardos and Ashley H. Lukis of GrayRobinson, P.A., Tallahassee, for appellant. Stuart H. Singer, Sashi C. Bach, and Jesse Panuccio of Boies Schiller Flexner LLP, Fort Lauderdale, and Joseph G. Galardi, Scott W. Atherton, and Alaina B. Karsten of Atherton Galardi Mullen &Reeder PLLC, West Palm Beach, for appellee.
Not final until disposition of timely filed motion for rehearing.
Appeal and cross-appeal from the Circuit Court for the Nineteenth Judicial Circuit, St. Lucie County; Elizabeth A. Metzger, Judge; L.T. Case No. 2017CA000508.
Andy Bardos and Ashley H. Lukis of GrayRobinson, P.A., Tallahassee, for appellant.
Stuart H. Singer, Sashi C. Bach, and Jesse Panuccio of Boies Schiller Flexner LLP, Fort Lauderdale, and Joseph G. Galardi, Scott W. Atherton, and Alaina B. Karsten of Atherton Galardi Mullen &Reeder PLLC, West Palm Beach, for appellee.
This appeal and cross-appeal arise out of a dispute between the appellant/cross-appellee, Florida Atlantic University Board of Trustees ("FAU"), and the appellee/cross-appellant, Harbor Branch Oceanographic Institute Foundation, Inc. ("the Foundation"), regarding the contours of their contractual relationship and the effect of legislation and regulations on that relationship. We affirm the trial court's astute decision and cite portions of it in support of our holding.
The parties executed a contract whereby the Foundation would become a direct-support organization ("DSO") of FAU. The Foundation argued below that a post-contract amendment to the statute governing DSOs unconstitutionally impaired its contractual right to make board appointments. The Foundation additionally argued that a post-contract amendment to a Florida Board of Governors ("BOG") regulation regarding DSO budget approval unconstitutionally further impaired its contractual right to exercise unfettered control over the Foundation budget.
A DSO is a Florida not-for-profit entity "incorporated under the provisions of chapter 617 and approved by the Department of State and [o]rganized and operated exclusively to receive, hold, invest, and administer property and to make expenditures to or for the benefit of a state university in Florida or for the benefit of a research and development park or research and development authority affiliated with a state university and organized under part V of chapter 159." § 1004.28(1)(a)2., Fla. Stat. (2007).
The trial court correctly found in the Foundation's favor as to its right to appoint all but two directors to its board. The trial court also correctly found in FAU's favor on the issue of whether FAU has a right of approval of the Foundation's budget.
In 2007, FAU and the Foundation, a research institute, executed a contract titled "Memorandum of Understanding" ("MOU"). The MOU provided that the Foundation would become a DSO, retain its current endowment, and transfer its assets, with specified exceptions, and operations to FAU. The MOU's Section 4 further provided that the Foundation's "board of directors will have two . . . appointees from FAU," and that "Foundation distributions shall be made in the sole discretion of the . . . Foundation Board of Directors to defray the expenses of its operations, to restore restricted corpus and retire debt, and to or for the benefit of [the research institute or FAU]."
After the MOU was executed, the BOG amended a regulation related to approval of DSO budgets ("Amended Regulation"). This spurred the Foundation to sue FAU, seeking declaratory relief regarding its control over its budget. Subsequently, the Florida Legislature amended the statute governing DSOs with respect to DSO board appointments ("Amended Statute"). See Ch. 2018-4, § 7, Laws of Fla. The Foundation's refusal to comply with FAU's request that the Foundation submit board appointments for FAU's consideration and approval led to FAU bringing a counterclaim against the Foundation, seeking a declaratory judgment plus injunctive relief. The Foundation asserted below that the Amended Statute and Amended Regulation unconstitutionally impaired the MOU.
The parties filed several motions for summary judgment, resulting in the trial court determining that parol evidence was required to resolve latent ambiguities in the MOU as to the issues of budget control and board appointments. After a four-day trial, the trial court entered an amended final judgment, partly finding in each party's favor. The court ruled that the Amended Statute unconstitutionally impaired the MOU by substantially weakening the Foundation's control over its board. However, the court found no impairment in applying the Amended Regulation regarding the budget approval, as the MOU did not contain a provision addressing adoption of the Foundation's budget.
Consequently, the trial court declared that (1) "all appointments made on or after July 1, 2018[,] to the Foundation's board of directors do not require the approval of the FAU board" pursuant to the Amended Statute, and (2) pursuant to the Amended Regulation, "the Foundation's operating budget shall be approved by the Foundation's governing board and FAU's board of trustees."
Overview of Legal Analysis
The parties have raised numerous issues on appeal and cross-appeal. We write to address the ultimate issues of whether the Amended Statute unconstitutionally impaired the MOU and whether the MOU addressed budget approval. We do not address the remaining issues.
The United States and Florida Constitutions prohibit the passage of laws impairing the obligation of contracts. See Art. I, § 10, cl. 1, U.S. Const.; Art. I, § 10, Fla. Const. "The Florida Constitution offers greater protection for the rights derived from the Contract Clause than the United States Constitution." Sears, Roebuck &Co. v. Forbes/Cohen Fla. Props., L.P., 223 So.3d 292, 299 (Fla. 4th DCA 2017).
"To impair a preexisting contract, a law must 'have the effect of rewriting antecedent contracts' in a manner that 'chang[es] the substantive rights of the parties to existing contracts.'" Searcy, Denney, Scarola, Barnhart & Shipley, etc. v. State, 209 So.3d 1181, 1191 (Fla. 2017) (alteration in original) (quoting Manning v. Travelers Ins. Co., 250 So.2d 872, 874 (Fla. 1971)).
"Total destruction of contractual expectations is not necessary for a finding of substantial impairment." Sears, 223 So.3d at 299 (quoting U.S. Fid. & Guar. Co. v. Dep't of Ins., 453 So.2d 1355, 1360 (Fla. 1984)). "Rather, impairment is defined as 'to make worse; to diminish in quantity, value, excellency or strength; to lessen in power; to weaken." Id. (quoting Pomponio v. Claridge of Pompano Condo., Inc., 378 So.2d 774, 781 n.41 (Fla. 1979)). "[A]ny deviation from [a contract's] terms," including the imposition of "conditions not expressed in the contract, . . . impairs an obligation." Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Ass'n, Inc., 169 So.3d 145, 150 (Fla. 4th DCA 2015) (quoting Joseph Story, A Familiar Exposition of the Constitution of the United States § 244, at 197 (Regnery Gateway, Inc. 1986) (1859)).
When a statute impairs a contract, the court must "determine whether the nature and extent of the impairment is constitutionally tolerable in light of the importance of the State's objective, or whether it unreasonably intrudes into the parties' bargain to a degree greater than is necessary to achieve that objective." Searcy, 209 So.3d at 1192 (quoting Pomponio, 378 So.2d at 780). "[V]irtually no degree of contract impairment is tolerable." Id.
But "[a]n impairment may be constitutional if it is reasonable and necessary to serve an important public purpose." Id. "[W]here the impairment is severe, '[t]he severity of the impairment is said to increase the level of scrutiny to which the legislation will be subjected." Id. (second alteration in original) (quoting U.S. Fid. &Guar. Co., 453 So.2d at 1360). "There must be a 'significant and legitimate public purpose behind the regulation.'" Id. (quoting Energy Rsrvs. Grp., Inc. v. Kansas Power &Light Co., 459 U.S. 400, 411 (1983)).
"A trial court's interpretation of a contract is reviewed de novo." Nationstar Mortg. Co. v. Levine, 216 So.3d 711, 714 (Fla. 4th DCA 2017) (quoting 19650 NE 18th Ave. LLC v. Presidential Ests. Homeowners Ass'n, 103 So.3d 191, 194 (Fla. 3d DCA 2012)). "If ambiguous, 'we review the trial court's interpretation of the [contract] for competent substantial evidence.'" Janoura Partners, LLC v. Palm Beach Imports, Inc., 264 So.3d 942, 946 (Fla. 4th DCA 2018) (alteration in original) (quoting Hastie v. Ekholm, 199 So.3d 461, 464 (Fla. 4th DCA 2016)).
But "[t]he interpretation or construction of a contract that is clear and unambiguous is a matter of law that is reviewed de novo." Summitbridge Credit Invs. III, LLC v. Carlyle Beach, LLC, 218 So.3d 486, 488 (Fla. 4th DCA 2017) (quoting Smith v. Shelton, 970 So.2d 450, 451 (Fla. 4th DCA 2007)). In the context of a contract impairment analysis, we review the constitutionality of a statute de novo. Sears, 223 So.3d at 298.
I. The Board Appointment Issue
FAU's appeal involves the provision of the Amended Statute related to DSO board appointments. When the MOU was executed, section 1004.28, Florida Statutes (2007), provided that the chair of the university's board of trustees "may appoint" a director to the DSO board, and that the university's president or a designee "shall also serve on the board of directors . . . of [the DSO]." § 1004.28(3), Fla. Stat. (2007). The Amended Statute, which became effective on March 11, 2018, added that "[t]he university board of trustees shall approve all appointments to any directsupport organization not authorized by this subsection." Ch. 2018-4, § 7, Laws of Fla.; § 1004.28(3), Fla. Stat. (2018). Subsequently, the BOG and FAU adopted conforming regulations.
FAU then requested the Foundation submit for its consideration and approval all appointments to the board from July 1, 2018, onward, but the Foundation did not comply. FAU brought a counterclaim, seeking in part a declaration that: (1) the Foundation is subject to the Amended Statute and conforming regulations; (2) aside from FAU's two appointments, all appointments to the Foundation's board made on or after July 1, 2018, require both boards' approvals.
In its final judgment, the trial court found the MOU "in essence incorporated the DSO board of director requirements contained within Fla. Stat. § 1004.28(3) (2007), which specifically limited FAU's involvement with the Foundation's board of directors to 2 appointees." The court further reasoned:
Clearly, allowing 2 board member appointments to emanate from FAU versus from the Foundation membership was not the norm for Florida Corporations and was only permitted per Fla. Stat. § 1004.28 and agreement of the parties. Both FAU and the Foundation clearly understood and agreed that FAU would not be entitled to have any other "say-so" in the Foundation board membership other than the 2 appointees noted in the MOU and per the documents that legally were required to set forth how the Foundation directors must be elected or appointed. Furthermore, FAU approved the Foundation's articles of incorporation and by-laws as required by the MOU and in connection with the MOU transaction. The Foundation's articles of incorporation and by-laws, as required by Florida Statutes, specifically set forth the total number of Foundation board of directors and how they were to be elected or appointed. The Foundation's articles of incorporation approved by FAU, as required by the MOU specifically: noted the 2 FAU board appointments agreed upon by the parties and as required by Florida Stat. § 1004.28(3); required at least 5 directors, with the board of directors (other than the 2 FAU appointments) being elected by the members of the Foundation.(Emphases in original).
The trial court found the Amended Statute impaired the MOU, reasoning the Amended Statute "less[e]ned or weakened the Foundation's right to control its board of director appointments emanating from the MOU contract," and "substantially lessened the Foundation's power to control its own board of directors."
The court then addressed FAU's "public purpose argument . . . that the State of Florida has a substantial interest in overseeing university DSOs." The court found FAU "did not present any evidence regarding the purpose behind or justification for the [Amended Statute]" and "failed to present evidence showing that Florida's actual interest resulting in the [Amended Statute] outweighs the severe impairment the amendment places on the Foundation's power to approve its own board members other than the FAU appointees it agreed to via the MOU."
The court further determined FAU's justification for application of the Amended Statute was neither "significant" nor "legitimate," "particularly where the DSO Statutes and regulations already entitled FAU to 2 seats on the Foundation's board, which ensures 'oversight' relating to the Foundation board activities."
We find no error in the trial court's determination that the Amended Statute unconstitutionally impaired the MOU. Consistent with the version of section 1004.28, Florida Statutes, in effect when the MOU was executed, the MOU provides FAU was to have two seats on the Foundation's board. The Amended Statute, for the first time, gave FAU approval power over all other appointments to the board.
The parties do not dispute that pursuant to the Amended Statute's language, the Foundation's board appointments are subject to FAU's approval. This interpretation of the statute's language is consistent with legislative history reflecting the statute was amended "to enhance transparency and strengthen accountability for state university DSOs." Fla. S. Comm. On Approp., CS for SB 4 (2018) Post-Meeting Staff Analysis (Dec. 7, 2017) (available at https://www.flsenate.gov/Session/Bill/2018/4/Analyses/2018s00004.ap.PDF)
The Amended Statute effectively rewrote the parties' contract by requiring the Foundation's board appointments to be approved by FAU. See Citrus Cnty. Hosp. Bd. v. Citrus Mem'l Health Found., Inc., 150 So.3d 1102, 1108 (Fla. 2014) (holding that a special law unconstitutionally impaired contracts between a foundation and a hospital board where it turned a foundation's governance over to the hospital board in disregard of the foundation's status as a separate legal entity, eliminated the foundation's ability to operate and manage the hospital as it had contracted to do, and obligated the foundation to comply with public accountability and financial responsibility measures mentioned nowhere in the contracts and that are in addition to what is required by statute).
Additionally, based on the record before us, we find no error in the trial court's conclusion that FAU did not establish an interest outweighing the substantial impairment to the MOU.
II. The Budget Approval Issue
The Foundation's cross-appeal involves the Amended Regulation, which relates to DSO budgets. The MOU provided that the Foundation "will not become a subsidiary of Florida Atlantic University Foundation, Inc. and shall continue to support FAU [or the research institute] as long as [the research institute] continues as a part of FAU." Further, the Foundation's "endowment will remain with the . . . Foundation," and Foundation "distributions shall be made in the sole discretion of the . . . Foundation Board of Directors to defray the expenses of its operations, to restore restricted corpus and retire debt, and to or for the benefit of [the research institute] or FAU." The MOU provided a non-exhaustive list of items distributions may fund.
At the time the MOU was executed, the operative budget regulation provided the following:
(3) Operating budgets of direct support organizations shall be prepared at least annually, approved by the organization's governing board and recommended by the university president to the Board of Governors for review.
(4) Expenditure plans of direct support organizations shall be reviewed and approved quarterly by the university president or designee, who shall be a vice president of the university or other senior officer of the university reporting directly to the president.
(5) Direct support organizations shall provide for an annual audit and management letter, as prescribed by internal memoranda, which shall be forwarded to the Board of Governors for review and oversight.
Fla. Bd. of Govs. Reg. 9.011 (2007). The post-MOU Amended Regulation required that "[o]perating budgets of support organizations shall be prepared at least annually, and approved by the organization's governing board and the university board of trustees or designee." Fla. Bd. of Govs. Reg. 9.011 (as noticed for amendment on June 25, 2009).
In 2017, the Foundation sued FAU, seeking a declaration that FAU "is not permitted to impose its proposed budget on [the Foundation], or any other budget that would substantially impair or destroy [the Foundation's] discretion to make distributions and ensure that its grants are properly administered and accounted for," and that it could not "take . . . action that will in any way impair or diminish the right to [the Foundation's] permanent independence with 'sole discretion' over its operations and decision making about its distributions." FAU's counterclaim sought, in part, a declaration that the Foundation's annual operating budget requires both boards' review and approvals.
The trial court ultimately found that the Amended Regulation did not alter the MOU. Based on the evidence introduced at trial, the trial court elaborated on the Foundation's primary concern when it negotiated the MOU:
When [the Foundation] insisted and requested its independence if it became a DSO of FAU, [its] focus was on independence from the existing FAU Foundation and not on independence from FAU. [The Foundation] recognized that if it became a DSO of FAU it could not be completely independent of FAU as there would be required legal "restrictions" imposed on their relationship. [The Foundation] understood and acknowledged that if it elected to accept FAU's offer and became a DSO, it would be subject to all applicable DSO laws. Understanding the restrictions and limitations associated with becoming a DSO, [the Foundation] focused on its primary concern that if it elected to become a DSO of FAU, its discretion to expend funds "to or for the benefit" of FAU may be impeded by FAU and/or the FAU Foundation. [The Foundation] was assured by FAU that [it] would maintain the sole discretion to expend it[s] funds "to or for the benefit" of FAU. Ultimately, in order to ensure continuation of operations and research at the Harbor Branch Institution and to honor the vision and legacy of Seward Johnson, [the Foundation] decided to accept FAU's proposal to become a DSO of FAU and executed the MOU.
After the MOU was executed, at times the Foundation
board exhibited signs of discontent regarding its status as a DSO of FAU. The evidence reflected that some Foundation board members even mentioned potential "decertification" as a DSO. However, as Foundation board member Sherry Plymale so aptly put it during . . . the Foundation board meeting held on January 24, 2017 . . . "it struck me then" at the time of the MOU execution "and it strikes me more now that perhaps when we put all that together, everybody is left with their own idea of what it meant as opposed to what it means . . . we [the Foundation] are a DSO, which we may not like, that's another question . . . but in the eyes of the law" we are a DSO "but . . . our budget does go to the board of trustees and then it will go to the board of directors ...." The Foundation knew it had agreed to be a DSO, perhaps not happily, but with the DSO designation, the Foundation knew that its budget would go to FAU's board of trustees and allowed it to do so in 2015 and 2016.
Along this line, approval of the Foundation's budget was not an issue of contention between FAU and the Foundation until 2017 when FAU's Dr. Flynn began discussing the possibility of FAU taking on certain administrative functions of the Foundation. It is true that from 2008-2014, the full and complete budgets of the Foundation (and for that matter, the FAU Foundation) were not separately reviewed by the FAU board[.] In approximately 2014, FAU noticed it was approving the annual budgets of two of its DSOs, but it was not separately approving the complete annual budgets of the Foundation and the FAU Foundation. Once this was recognized, the full budgets of the Foundation and the FAU Foundation were reviewed and approved by FAU per section 1004.28(2), BOG Reg. 9.011(4) and FAU Reg. 6.013. In 2015 and 2016 the FAU board of trustees voted to approve the Foundation's budget. No one from the Foundation raised objections to these Foundation budget approvals by the FAU board in either 2015 or 2016.(Footnotes omitted).
The trial court then addressed whether the MOU's section 4 constituted an agreement that the Foundation's operating budget was to be approved solely by the Foundation's board. Based on the language of the MOU and the trial evidence, the court determined no such agreement existed:
The intent of the MOU language contained in section 4 that "distributions shall be made in the sole discretion of the . . . Foundation Board of Directors to defray the expenses of its operations, to restore restricted corpus and retire debt, and to or for the benefit of FAUHBOI or FAU" was to memorialize the agreement between the parties that the Foundation had sole discretion to expend/distribute its funds "to and for the benefit" of FAU (the MOU statutory requirement) versus the FAU Foundation or FAU having the ability to "weigh in" on such DSO expenditure decisions. The credible negotiation and course of dealing evidence does not reflect an intent, agreed upon by the parties, that the MOU language regarding "sole discretion" of "distributions" was tied to the development of the Foundation budget or approval of such budget. The Foundation and FAU did not negotiate or contractually agree to (via the MOU) the Foundation, once it became a DSO, having sole discretion to approve the Foundation budget; the Foundation budget was not the negotiated issue, the Foundation's "to or for the benefit" expenditures to FAU (as required by the DSO Statute) was the specific negotiated issue contained within the MOU. It also noted that the MOU negotiations always contemplated establishing the Foundation's offices on FAU's campus, which occurred soon after the transaction closed; the Foundation did not leave FAU's campus until 2019. As a result, at the time the MOU was executed and at the time Dr. Flynn proposed changes to the Foundation budget in 2017, FAU indeed had the authority to engage in budget and audit review and oversight of the Foundation's budget pursuant to section 1004.28(2), Florida Statutes.
The trial court concluded that because the MOU's section 4 did not contain an agreement addressing budget approval, the Amended Regulation did not rewrite the MOU or materially impair it.
We agree with the trial court that the MOU's section 4 does not address budget approval, and that, consequently, the Amended Regulation does not rewrite or materially impair the MOU by requiring both a DSO and the related university to approve the DSO budget. Our holding does not affect the Foundation's exclusive discretion to make distributions as provided in the MOU.
Accordingly, we hold the trial court correctly found the Amended Statute unconstitutionally impaired the MOU to the extent it gives FAU the right of approval over Foundation board seats other than the two granted to FAU in the MOU. Additionally, we hold the MOU did not address adoption/approval of the Foundation's budget, and thus the Amended Regulation, which required approval of the Foundation's budget by both the Foundation and FAU, does not unconstitutionally impair the MOU.
MAY and CONNER, JJ, concur